A former Samsung Elec CEO has been accused of stealing secrets from a Chinese chip maker

A former executive at Samsung Electronics Co. of South Korea (005930.KS) was indicted on Monday on suspicion of stealing company technology from a chip factory in China and endangering national economic security, prosecutors said.

South Korea is a powerhouse in the chip industry, which is under increasing pressure from the geopolitical and economic rivalry between the United States and China. Last week, President Yoon Seok-yul called the competition in the chip industry an “all-out war.”

The accused, who also previously worked at SK Hynix (000660.KS) as vice president, is accused of illegally obtaining Samsung data to build a competing factory just 1.5 kilometers (1 mile) from Samsung’s chip manufacturing facility in Xian, China. Suwon District Prosecutor’s Office said in a statement.

Prosecutors said they estimated that the data theft caused losses of at least 300 billion won ($233 million) to Samsung Electronics.

“It is a serious crime that can deal a heavy blow to our economic security by shaking the foundations of the domestic chip industry at a time when competition in chip manufacturing is increasing,” the prosecutor’s office said.

The public prosecutor said the defendant, who was arrested last month, denies the allegations.

Prosecutors said the suspect, who was not identified by officials, had worked 28 years for chipmakers in South Korea.

Reuters could not immediately reach him for comment.

Samsung Electronics and SK Hynix declined to comment.

A trial date has not yet been confirmed by the court in which the indictment was filed.

The attorney general said that an attempt to build the new factory using Samsung data between 2018 and 2019 failed due to financing issues.

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Prosecutors said they have indicted six other people suspected of involvement, including an employee of an inspection company accused of leaking the architectural blueprint of Samsung’s semiconductor plant.

Police work

The indictment comes as South Korea vowed to ramp up support for its chip sector.

Samsung and SK Hynix, the world’s two largest memory chip makers, have invested billions of dollars in chip factories in China.

Commerce Department data showed that while Samsung and SK Hynix rely on US technology and equipment, about 40% of South Korea’s chip exports go to China.

Although China was lagging behind in memory chip production, its companies quickly caught up with South Korean competitors.

Seoul-based analysts estimate that there is a technology gap of just two years or less between NAND Flash chips made by China’s YMTC and industry leaders such as Samsung Electronics and SK Hynix.

Analysts said South Korean companies have a practice of developing a high-end chip in South Korea first, then manufacturing it in their factories in China after a year or so, in part to ward off leaks of the latest technology.

South Korea has cracked down on corporate espionage in recent months.

On Sunday, police said they had arrested 77 people involved in 35 cases of suspected industrial espionage in a nationwide investigation over the past four months.

“We will strictly deal with any leakage of our technology abroad and will respond forcefully to the illegal leakage of core technologies of domestic companies in the semiconductor, automobile, shipbuilding and other sectors,” a national police official said in a statement.

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($1 = 1,287.7700 won)

(Reporting by Soo Hyang Choi) Additional reporting by Joyce Lee. Editing by Raju Gopalakrishnan and Jason Neely

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